What is debt?
Debt is money owed to a person or organization, generally with accumulating interest - the percentage of a loan balance the lender charges for the use of its money.
Debt can be caused by a lack of financial knowledge. Some students end up borrowing high interest loans or relying on credit because they don't know about the alternatives.
Financial aid debt
The four types of financial aid are student loans, scholarships, grants, and work-study. Loans are debt; scholarships, grants, and work-study are not. Grants are free money, scholarships and work-study are earned money, and student loans are borrowed money. Student loans accrue interest, and you must repay them.
Scholarships are merit based, meaning they are awarded to students with certain qualities.
Federal and State Grants are awarded based on financial need. Be sure to complete the Free Application for Federal Student Aid (FAFSA) to determine your eligibility.
Federal work-study provides part-time jobs for undergraduates and graduates with financial need.
Loans are debt provided by an organization at an interest rate. Unlike scholarships, grants, and work-study, you must repay your loans. Fill out the FAFSA to determine your eligibility for federal loans.
What is the FAFSA?
The FAFSA or Free Application for Federal Student Aid is the form the government uses to determine the maximum amount of need-based federal financial aid you are eligible to receive.
When to fill out the FAFSA
- You'll fill out the FAFSA on a yearly basis. It is available October 1st. To complete the FAFSA, you'll need the following:
- W-2 forms and other tax documents
- Personal information
- Parent or guardian information
There are two main sources of student loan debt: federal and private.
Federal loansFederal loans come from the federal government. They often have lower interest rates and more flexible repayment options than private loans. You can view the types of federal loans at https://studentaid.ed.gov/sa/types/loans.
Private loans are an option for students who can't meet financial obligations, even with money available through federal loans.
Private loans are not subsidized, meaning the government will not cover the interest while you're in school. Eligibility and interest rate depend on your credit history.
Which type of loan is best?
Most student loans are federal. It is only necessary for students to borrow private loans if they still need help funding their education after applying for federal loans.
Tips for borrowing
Your student loan debt should be less than your starting annual salary after graduation.
Use loans for educational purposes, not for vacations, cars, etc.
- Make a budget without using loans as a resource. Only borrow what you can't cover with your other sources of income
How to repay loans
Your loan servicer or lender must provide you with a loan repayment schedule. The repayment schedule should specify when your first payment is due, the number and frequency of payments, and the amount of each payment.
View your federal loans
Go to National Student Loan Data System
Click on “Financial Aid Review”
Accept the terms and conditions
Log in with your FSA ID. If you don't have one, you can create one.
After logging in, you should see a summary of all your loan data.
View your private loans
Start by checking your mail or email for statements. You may also log into the servicer or lender website.
Your loan payment should represent 10 to 15 percent of your income. There are repayment plans to help you make ends meet.
If you work in public service professions such as teaching, military, firefighting, law, medicine, or government, you are eligible for loan forgiveness programs after making 120 full monthly payments. To learn more, visit https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service